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Mortgage interest example...
The Power of Compound Interest: Calculations and Examples
What Is Compound Interest?
Compound interest is interest that applies not only to the initial principal of an investment or a loan, but also to the accumulated interest from previous periods.
In other words, compound interest involves earning, or owing, interest on your interest.
The power of compounding helps a sum of money grow faster than if just simple interest were calculated on the principal alone.
And the greater the number of compounding periods, the greater the compound interest growth will be.
What is mortgage interest today
For savings and investments, compound interest is your friend, as it multiplies your money at an accelerated rate. But if you have debt, compounding of the interest you owe can make it increasingly difficult to pay off.
Key Takeaways
- Compounding multiplies savings or debt at an accelerated rate.
- Compound interest is interest calculated on both the initial principal and all of the previously accumulated interest.
- Generating "interest on interest" is known as the power of compound interest.
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